Health Care Costs Projected to Jump By 14.1%

Based on input from actuaries at leading health care insurers, claims costs for health maintenance organization (HMO) and point-of-service (POS) plans are projected to increase 14.1% on average for 12-month coverage periods ending in September 2005, according to Aon Consulting's Spring 2004 Health Care Trend Survey.

For the first time ever, Aon also forecasted the rate of increase for companies using consumer-driven health plans; it found that trend rate would also be 14.1%. However, an Aon spokesman cautioned that the latter percentage should not be taken out of context.

"It's important to look at overall cost for health care programs," said Senior Vice President Bill Sharon who directed the study. "Our analysis reveals that a company can realize first year savings of up to 8% of their cost if they implement an effective consumer-driven health care strategy. So, although consumer-driven plans will likely see the same level of increase as other coverage plans this year, considerable savings will still be recovered by making the switch. It all depends on the financial incentives and the resulting changes in consumers' health care consumption."

Sharon noted that consumer-driven plans are expected to be an even more attractive model in years to come. "Early returns on the impact of consumer-driven plans have been positive. Significant reductions in unnecessary care have been charted. Once the actuaries begin to see these results continue year [after] year, we predict that this will be reflected in trend rates and future trend lines will drop lower than other plan models."

In addition, although the pharmacy rate projections are slightly lower than last year, Sharon said they still come in at 14.4%, showing that employers must continue to take a look at how their prescription drug coverage is designed. Connie Perry, director of Aon's national pharmacy practice, said: "As consumerism continues to take hold, and we see employees continue to play a larger role in their own health care decisions, use of generic drugs is helping to lower the overall trend line for prescription drug coverage. However, in the months to come, we will see discussion about expensive 'biotech injectable' drugs move to the forefront, so plan design in light of these innovations will be vital."

Perry noted that the role of biotech-derived injection medications—primarily used to treat high-cost disease states for which previous treatments may have been more invasive or unavailable—will be important for companies to watch. She noted that current estimates are that only 5% of total prescription drug costs are from such drugs, but their cost impact on health plans will become more pronounced as their use increases.